Exception to the Means Test: What is a Non-Consumer Debt Bankruptcy?

The means test is designed to compare income to state medians so that only people qualified for Chapter 7 relief are entitled to it. There is, however, an exception that you can use if more than half of your debt is business related and not consumer related. A consumer debt is defined as one incurred for personal or household expense, whereas a business related debt is usually defined as that which was taken out in connection to your business or in hope of making a profit.

Therefore, credit cards used to pay business expenses or to purchase items for your business would qualify as business debts, as would vehicle loans, money owed to suppliers or vendors, and business taxes. When it comes to mortgages, if the property was purchased for the business or as an investment property, the mortgage will usually be considered a business debt. Also, many people are surprised to learn that Federal, State and Local taxes also qualify as a non-consumer debt. Usually, your home mortgage is the biggest obstacle to qualifying for the business debt exception because of the size of most first and second mortgages on the average home.

So how does the No Means Test Bankruptcy work?: Quite simply, if your non-consumer debts are more than your consumer debts, you do not have to pass the means test to file a Chapter 7 case. Rather, you can file a Chapter 7 despite making too much income. Also, your assets will receive the same levels of exemptions and protection they would in any other type of Chapter 7 case. So a non-consumer debt Chapter 7 case can be a great benefit to clients that otherwise would not be able to file a Chapter 7.

As a side note, in addition even if you can skip the means test for your case, each bankruptcy has a good faith requirement. This means that even if you gain exemption from taking the means test, a court can still disqualify debtors based on a lack of good faith. While unusual, would occur if debtors have a very large amount of income and their budget can easily be adjusted to pay back a portion of their debts. However, there are some court decisions that indicate that the “bad faith” objections may not actually apply to non-consumer debt bankruptcy cases.